The late 2000s “global economic meltdown” and values of McMansions

One columnist connects the economic crisis of the late 2000s and McMansion values:

Perhaps you thought the last decade’s global economic meltdown, which crushed stock prices and McMansion values, would most hurt the wealthy. Nope. The gap between rich and poor in the U.S. expanded in the aftermath of the Great Recession. The (sarcastic) good news: America’s wealth gap expanded less than Bulgaria’s between 2010 and 2017.

Three quick thoughts:

  1. McMansions are often cited as a symptom of the problems that led to the economic crisis and housing bubble of the late 2000s. The spirit of consumption in the United States with lenders providing more and more risky loans (and not recognizing the problematic loans and then selling and buying them as if they were good investments) plus decisions by consumers to purchase more and acquire debt all contributed to the larger issues. If you needed one symbol of excessive consumption from the early 2000s, commentators often go for the McMansion or the SUV.
  2. While the McMansion became an important symbol, housing prices almost across the board declined precipitously. Not just McMansions were affected. And since most American single-family homes are not McMansions, it seems a bit odd to single them out here. Many Americans who would not or could not purchase McMansions felt the effect of declining property values.
  3. Housing construction declined during and stayed depressed for a number of years after the economic crisis. Even during this down time, builders continued to construct McMansions. And once the economy started to pick up, more McMansions appeared. While the economic trends certainly affect how many McMansions go up, the style of home has some staying power. Even if such homes helped contribute to the economic crisis, some Americans still want to build and buy them. The value of such homes may not be the only reason people build and buy them.

Beleaguered shopping malls face more closing stores

Shopping malls face multiple challenges, including more and more store closings:

It’s only April, but already this year more store closures — nearly 6,000 — have been announced than in all of 2018…

U.S. retailers so far have announced they will shut 5,994 stores, while opening 2,641, according to real estate tracking done by Coresight Research. That’s more locations slated to go dark than during last year. In 2018, there were 5,864 closures announced and 3,239 openings, Coresight said.

The planned closures include more than 2,000 from Payless ShoeSource, which filed for bankruptcy, hundreds from clothing retailers like Gymboree, Charlotte Russe, Victoria’s Secret and Gap, and discount chain Fred’s. Meantime, chains like Aldi, Dollar Tree, Ollie’s Bargain Outlet, Five Below and Levi’s are planning to open more stores…

With more store closures likely on the horizon, consumers can expect to start seeing hotels, gyms, apartment complexes, more food halls and grocery stores at traditional malls, turning them into more like city centers. The new Hudson Yards mall, which opened in New York last month, is the perfect example of this mixed-use model.

Before long, shopping malls may morph more into entertainment and public spaces than shopping spaces. In today’s world, it is not enough to cluster a bunch of national retailers together in an indoor or outdoor setting surrounded by plenty of free parking. The era of teenagers hanging out at the mall (and efforts to counter those gatherings) may be over. And it may not be only shopping malls that are in trouble; this may not be an issue of too much suburban sprawl. Rather, shopping districts all over the place, even in Manhattan, may be threatened. Some of these shopping areas will continue, particularly those surrounded by wealth or those that offer unique “cosmopolitan canopies.” Others will be transformed to the point that it will be very difficult to discern they were once shopping malls.

Furthermore, it will be interesting to see how these retailer brands disappear into the night or return in new forms or with new emphases or new money. Will Payless come back? Is Gap in its death throes and will its lessons be absorbed by companies taking up that same business space? Can Sears hang on another decade or even make a comeback?

 

Uniqlo, don’t lose your edge by appealing to the suburban market like Gap did

An overview of Uniqlo suggests it would do well to avoid becoming the wear of suburban families:

Uniqlo isn’t in the business of chasing trends. Its staples—versatile black pants, reliable oxfords, crisp cotton socks—are available month after month, year after year. A more apt analogue would be the Gap. In its 1990s heyday, the Gap revolutionized American retailing by making basics cool. But the company eventually became a victim of its own success. “When [the Gap] tried to go from having a certain cachet to being in every single mall in every single town in America, the brand lost its edge,” Steve Rowen, a managing partner at Retail Systems Research, told me. Gap clothing became the uniform of suburban moms and dads. Despite the company’s efforts to make its khakis less baggy and its shirts slimmer, no one wants to fall into the Gap anymore—especially when you can get cheaper basics with cleaner lines at Uniqlo…

That could be an opportunity to make a good first impression. But as Uniqlo learned when it arrived on American shores, first impressions can be hard to manage. The three original U.S. stores were in New Jersey malls, where the company soon encountered several hurdles, including fit. (American customers, on average, are taller and fleshier than Japanese shoppers.) It closed the stores within a year.

Uniqlo has continued to struggle in suburban markets. Rowen, of Retail Systems Research, said he thinks the company should hew closely to cities, where it has found its greatest success, because that’s where its core customers are. This would also help it avoid the fate of the Gap, which traded its sense of self for growth.

This could be a simply story of a company being cautioned to avoid the mass market because doing so would lessen is cool factor. But, it is interesting that this is cast primarily in suburban/urban terms. The dilemma appears to be choosing between these two points:

  1. The majority of Americans live in suburbs. If a company wants to hit it big, the American people are in the suburbs. Furthermore, there is a lot of money to tap in the suburbs as well as future generations of loyal brand adherents in the form of suburban children.
  2. Being associated with the suburbs – shopping malls, parents, the mass market – will change the brand and eventually render it obsolete.

It is also worth considering numerous other brands that have appealed to suburbanites and survived. Is the clothing market that different than the smartphone and tech industry? In other words, does Apple suffer because so many suburbanites have an iPhone or are they the rare example of a company that has kept its cool factor even while becoming ubiquitous?

If this were an American company, I might guess that they would eventually go for the suburbs with all its money and potential buyers.

Advertising your business as five miles east of a wealthy suburb

Suburban businesses can use odd geographic markers to describe their own location. One building material company in the Chicago area regularly runs radio ads with this description of their location: five miles east of Oak Brook in Broadview. Why might they do it this way?

  1. Compared to Broadview, Oak Brook is a more known location.
  2. Oak Brook has a large shopping area with a mall and all sorts of restaurants and other businesses nearby. People already out shopping may be willing to drive a bit further.
  3. Oak Brook is a higher status community with more wealth. Also, Broadview is majority black and Oak Brook is majority white.
  4. They are trying to reach wealthier suburban customers. This is why they do not say they are roughly 14-15 miles from the center of the Loop.

All in all, the Broadview location is about 10 minutes east of Oak Brook. That is not a long drive for suburbanites who may be willing to drive all over the place for good deals. And the advertising strategy may have some effectiveness as the business keeps using it. Still, it strikes me as a bit odd to downplay their own location in favor of a suburb five miles away…

 

UX, sociologists and anthropologists, and changing cars

Design thinking has come to Ford and with it insights from sociologists and anthropologists:

So it came as a surprise last spring when Ford Motor Company selected a chief executive who hadn’t been reared in Detroit and didn’t easily fit established CEO molds. He was a furniture maker. Jim Hackett, 63, is a product of Michigan’s other corporate cluster—the three office-furniture companies around Grand Rapids, including Steelcase, which Hackett ran for two decades.

At Steelcase, Hackett became a devotee of an approach to product development known as design thinking, which rigorously focuses on how the user experiences a product. He forced Steelcase to think less about cubicles—its bread-and-butter product when he arrived—and more about the people inside them. Hiring anthropologists and sociologists and working closely with tech experts, he made Steelcase a pioneer in the team-oriented, open workspaces so common today. In effect, he transformed an office-supply company into a leader of the revolution in the way we work…

Our lives are made up of human-machine interactions—with smartphones, televisions, internet-enabled parking meters that don’t accept quarters— that have the power to delight and, often, infuriate. (“Maddening” is Hackett’s one-word description for 90-button TV remotes.) Into this arena has stepped a new class of professional: the user-experience, or UX, designer, whose job is to see a product not from an engineer’s, marketer’s, or legal department’s perspective but from the viewpoint of the user alone. And to insist that the customer should not have to learn to speak the company’s internal language. The company should learn to speak the customer’s…

This was a profound realization. “The phone was considered an accessory you brought into your vehicle,” says Ideo’s global managing director, Iain Roberts. “Now I think the relationship may have flipped—the vehicle is an accessory to the device.” That’s the kind of insight that previously would have surfaced late in the design process, when the company would ask for customer feedback on a close-to-finished product. Discovered early, it put the team on a path to build a prototype that was ready in an unheard-of 12 weeks.

Three quick thoughts:

  1. Both disciplines of sociology and anthropology could benefit from sharing how corporations use them. UX is a growing field and majors in these disciplines could offer unique skills in going after such jobs.
  2. This reminds me of the process social scientists often go through with new concepts. If they pronounce concepts or labels from above, they may then get pushback from those closer to everyday life. On the ground realities should influence how we understand larger patterns. At the same time, the reverse could be true: the user-experience/everyday realities could become so important that they overshadow the larger patterns or constraints.
  3. That Ideo is involved in this process does not surprise me. In class, I use an old Nightline clip of Ideo designing a shopping cart to illustrate how organizations could work.

Consequences of an auto loan bubble

With more financing options available for purchasing cars, American driving is up:

By increasing access to cars, lax financing standards also appear to be contributing to a national rise in driving, and with it, declining public transit ridership. In the latest edition of its biennial survey of who’s riding buses and trains in U.S. cities, Transit Center, a public transportation research and advocacy group out of New York, notes that the share of households without vehicles fell 30 percent between 2000 and 2015, with foreign-born residents, who are more likely to earn lower incomes and ride transit, posting even sharper declines.

In the survey, respondents who reported decreasing their bus and train use overwhelmingly replaced transit with private cars. And almost half of respondents who said they’d purchased a car over the past two years received a loan to finance it. Of those, 56 percent said that getting a loan “was easier than they had expected.”

Of course, improved car access among lower-income groups might look to be a positive trend on its face, since a personal vehicle can equate opportunity. So strong is the historic link between car ownership and household income that a trio of transportation equity scholars recently called for subsidizing access to wheels for poor Americans. But fewer rides made by public transportation and more by private automobile is a trend with consequences that transcend the U.S. economy: It feeds the planet’s existential problem of rising carbon emissions, especially since SUV and truck sales have become particularly popular during this auto-loan boom. “The rise in auto debt is evidence that we’re dependent on cars in an unsustainable way,” said Cross.

The new high-water line of defaulted auto loans also suggests that personal vehicles aren’t always golden tickets. Instead, for Americans living paycheck to paycheck, they’re a catch-22: If you don’t have the money and can’t buy a car, you’ll struggle to make ends meet. And if you don’t have the money, but still buy a car, you’re liable to fall even further behind. Vehicles may be the table stakes for playing in the U.S. economy, but in so many ways, it’s getting harder to win.

As noted by many, just as homeownership came within the reach of more people in the 2000s due to creative lending options and subprime options, the same is true of the auto industry. Does this mean that a burst bubble in car loans – due to many people being behind on their vehicle payments – would cause Americans to rethink driving and the reliance on personal vehicles?

I would guess no. At this point in American history, the country is too far in on its dependence on driving. It is not just about driving to work; driving offers opportunities to access cheaper housing, independence for drivers compared to utilizing mass transit which works on consistent schedules and requires being around other people, and a host of consumer and recreational opportunities primarily accessible through driving (think big box stores, shopping malls, fast food places, road trips, etc.). This list does not even account for the auto industry and the construction industry which have huge stakes in more driving.

At the same time, while Americans have resisted public housing, would they be more amenable toward government help in obtaining or paying for cars? Few communities or government agencies have provided cars or money towards cars but it may be necessary in a society heavily dependent on getting around via a car.

 

#1 payment priority for Americans: car loan

In a country dependent on and built around driving, perhaps the importance of making car payments is not a surprise:

“Your car loan is your number one priority in terms of payment, “said Michael Taiano, a senior director at Fitch Ratings. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher priority payment than a home mortgage or rent.”

People who are three months or more behind on their car payments often lose their vehicle, making it even more difficult to get to work, the doctor or other critical places…

After the financial crisis, there were a lot of restrictions placed on mortgages to make it harder to take out a home loan unless someone could clearly afford to make the monthly payments. But experts warn that there are far fewer restrictions on auto loans, meaning a consumer has to be more savvy about what they are doing when they take out a loan.

This article made me think a little: does this mean that cars come before homes in the United States? This would counter my own claim that suburbs are more about single-family homes then they are about cars – see my rough rankings of Why Americans Love About Suburbs.

Yet, the suburbs existed before cars. By the early 1900s, suburbs existed and utilized transportation technologies like railroads and streetcars. Mass suburbanization certainly occurred on a different scale with the availability of cars in the 1920s and then after World War II. But, the United States would have had some form of suburbs and their emphasis on single-family homes without cars even if that was on a smaller scale.

The whole relationships between cars and homes was cemented in the postwar era when increasing sprawl really did limit other transportation options for many people. And the shift of jobs to the suburbs made this problem even worse. Perhaps we could shift the what-if scenario to the future: could the suburbs go on without cars (hard to imagine) or cars on without suburbs (probably)?